Online Credit Counseling Tips

• College Students: Credit Card Debt Trap for a college student
• Instead of a New Year's resolution, make debt reduction a goal for life.
• Why is paying the Minimum Monthly Payment not enough?
• Holiday Spending: How to keep your debt load down
• Is there an alternative to debt consolidation and/or personal bankruptcy?

Why is paying the Minimum Monthly Payment not enough?

Credit card companies figure a minimum payment amount based on a percentage of your current balance, usually 2%, or flat figure. Paying this minimum amount keeps your account in good standing with the credit card company.

If your credit card balance is large, it may take years to pay off your credit card by only paying the minimum payment. The higher your interest rate, the longer it takes to pay off your balance. In some cases, your minimum payment may only cover the interest charged on the remaining balance. For example, lets say that you have a $5000 balance on your credit card with an 19.9% annual percentage rate (APR). If you pay a montly minimum payment of $100, it will take you almost 10 years to pay off the balance!

What is the solution? Pay more than your minimum monthly payment. If you cannot afford to pay more than your montly minimum, then you may need to consider a debt consolidation program or a credit counseling program. Many of these organizations like CareOne Credit Counseling, CuraDebt, and Debt Guru are non-profits organizations with counselers that want to help you live a debt-free life. They will contact your creditors, renegotiate your debts, and lower your interest rate. You will be required to send one monthly payment to the credit counseling organization and they will disperse the amount paid to your creditors. With a lower interest rate, you will pay off your creditors faster than if you continued to pay your minimum monthly payment.

Posted Nov 2005 [ linkback ] return home